The Free Market 7, no. 3 (March 1989)
A Free Market Breakthrough
by Jeffrey M. Herbener
The day before my Free Market Reader arrived in the mail, I was discussing economics with a group of businessmen. In response to a request for a book giving an introduction to free-market economics, I recommended Henry Hazlitt’s Economics in One Lesson. But I had to admit that the shortest and best articles are in newsletters like the Free Market. I promised to compile some back issues and send them to him. Much to my delight, the next day, I discovered that the Ludwig von Mises Institute had done the job for me.
The Free Market Reader (Ludwig von Mises Institute, 1988) is a 40-page collection of 76 articles, most of which first appeared in the Free Market newsletter. Since 1982, the Mises Institute has used this medium to promote economic understanding to the general public (although academics like myself enjoy it too). The purpose is to educate people about the need to rid society of the impoverishment and injustice caused by the government.
The fundamental principle of free markets is that voluntary exchange benefits all participants, while coercion benefits one group at the expense of another group. Thus coercion creates not only inefficiency, but intergroup clashes of interest, or what Mises called “caste conflict.” These conclusions form the basis of the Misesian defense of laissez-faire capitalism.
Recognizing that government aggression is harmful to wealth creation and creates conflict, Austrian economists can be uncompromising advocates of freedom. “Freedom is indivisible,” Mises says. That’s why Misesians stand in stark contrast to other so-called free-market economists who support freedom in some areas and government intervention in others.
In the pages of the Free Market Reader, freedom is right, coercion is wrong, and let the special-interest chips fall where they may. And truly, only a consistent adoption of true principIes deserves activist followers. It is the unwavering adherence to the Misesian approach to social change that makes this book unique and enduring.
This approach is exemplified in the section entitled “Great Economists. “ In these tributes to the champions of freedom, we see the heart and soul of the Mises Institute. The lead article is a transcript of a moving speech given by Margit von Mises at a dinner held in her honor in 1984. It is worth the price of the book to read it. Llewellyn Rockwell, William Peterson, and Bradley Miller add their tributes to the ideas and courage of Mises. Other essays describe the work and character of Henry Hazlitt, W.H. Hutt, and Murray N. Rothbard. It is especially gratifying to read the deserved acclaim for Rothbard, an economist of extraordinary creativity and intellectual capacity, who authored many of the articles in the book.
In the section on the material and moral superiority of the free market, Murray N. Rothbard debunks economic myths, illustrates the competitive process, explains the determination of interest rates and the consequences of credit expansion, and discusses how to spot·both semantic and statistical lies perpetrated by government officials. Rockwell picks up this latter theme when explaining special interest group activity. Of particular interest is David Gordon’s essay about Mises’s demolition of Karl Marx.
The uniqueness of Austrian monetary theory lies in its insight that money originated in exchange as a valuable commodity. Being part of the pattern of voluntary exchange, free-market money is necessarily efficient. But when government creates and supports fiat money and a cartelized fractional-reserve banking system, the result will be inefficiency and injustice. Rothbard discusses these two characteristics of the U. S. monetary system as well as international monetary affairs; Mark Skousen explains how the government creates the business cycle via Federal Reserve credit expansion; and Tucker Alford recounts government nationalization of free-market money and its consequent debasement and depreciation. In his most important monetary essay, Rothbard explains why the free-market gold standard is superior to schemes for competitive or “denationalized” money; these forget how money must originate, as explained by Mises’s regression theorem.
On issues of free trade and protectionism, the authors observe that voluntary exchange internationally increases wealth whereas coercion diminishes it. Rothbard debunks the protectionist fallacies of “fair competition,” “dumping,” “infant industries,” “aging industries,” and “balance of payments deficits.” Robert Higgs examines the protectionism of economic warfare and the resulting increase of government power. Other essays apply Austrian analysis to cases such as interstate trade, Lee Iacocca, apartheid, and Japanese competition.
Another section is devoted to the Misesian critique of socialism and its consequences. Hans-Hermann Hoppe shows it impoverishing effects and why it results in less saving and investment, inefficient production, shortages of consumption goods, overutilization of capital goods, reductions in the quality of goods, and the politicization of society. Other essays explain historical cases of famine and other failures of socialism.
Privatization and government ownership is also considered. Since socialism is government ownership of all property, leading to complete economic chaos, any movement toward socialism via government ownership of property creates islands of chaos in society. The articles in this section chronicle the harmful effects of government control of airports, land, rivers, oceans, roads, the postal service, social security, used body parts, and child care. In each case, the cure requires government surrender of property to private owners. Anything less will only change the form of the misallocation. As Rothbard puts it, true privatization is desocialization of the economy. Along a different line, Rockwell writes an article exposing the behavior of conservatives who railed against government regulation under Carter but gleefully took the reins of control in the Reagan administration.
Also considered are budget deficits, taxes, bureaucracy, and interventionism. Reed discusses the economic plagues caused by government credit expansion during the 19th century while Rothbard and Ron Paul examine the stock market crash ot 1987. Rothbard and Rockwell explain how government officials use various crises they create, such as budget deficits and business cycles, to enhance their own power by enserfing the rest of us. Other articles discuss how and why bureaus are established to serve special interest groups—including bureaucrats—at the expense of the public.
The book concludes with a critique of the legacy of Reaganomics: ironically, an enormous bias toward state control and influence in the economy. Here is where the theme of the book is represented, par excellence. And when Reaganite rhetoric meets the winnowing rod of Misesian analysis, the talk is blown away as chaff. In contrast, the Free Market Reader remains as the meat of the grain.
The articles are written with a passion too often missing from economic discussion. As Mrs. Mises writes about the Mises Institute, “we have the intellectual leadership, the managerial expertise, and the burning desire to succeed. And, happily for us, we have the truth on our side. If anyone doubts that, let him or her look at all the calamities, the miseries, the cruelties, and the stupidities of every form of collectivism and interventionism. With truth on our side we cannot, we must not, we will not fail!”
The Free Market Reader provides a convenient and durable format for the economics of liberty to be transmitted to the general public. I liked it so much that I gave my copy away. I wonder if the Mises Institute has special bulk-order prices?
A Celebration of Murray N. Rothbard
by Sheldon L. Richman
A festschrift is a celebration in writing, a book of essays written to honor someone whose intellectual accomplishments are worthy of such honor. I can think of no one more deserving of a festschrift than Murray N. Rothbard, who has inspired a generation of young economists, political philosophers, and historians.
Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, a collection of 29 scholarly papers and personal reminiscences, does justice to this passionate giant of the scholarship of freedom. No one interested in Rothbard, Austrian economics, or libertarianism will want to be without this magnificent book. It is 440 pages of thought-provoking writing from such important Austrian economists, historians, and political theorists as Israel Kirzner, Roger Garrison, Ralph Raico, Dominick Armentano, Hans-Hermann Hoppe, Walter Block, Leland Yeager, David Gordon, Arthur Ekirch, Tibor Machan, Douglas Den Uyl, and more. As a special treat, there are personal statements from Rothbard’s wife JoAnn and Margit von Mises, widow of his mentor Ludwig von Mises.
The book, which grew out of a conference celebrating Rothbard’s 60th birthday in 1986, honors Rothbard as an economist, political philosopher, political scientist, historian, and cultural critic. His contributions in each area have heartened so many people attracted to his commitment to reason, clarity, values, methodological individualism, and, above all, liberty. They are equally attracted to his spirit of intellectual adventure as he takes on the advocates of statism. Roger Arnold, in his chapter on the “Prisoner’s Dilemma, Transactions Costs, and Rothbard” refers to Rothbard’s “refreshingly clear writing, finely crafted, logically-deduced conclusions, intermittent thought-provoking questions, ability to find the usually hidden weak point in an opponent’s argument and draw it out in the open where it is thoroughly thrashed, and uncompromising dedication to the cause of liberty that can be felt and is appreciated, at an intellectual level by some and at a subconscious level by others.”
In my observation of Rothbard over the past 20 years, I have constantly marveled at his clear, down-to-earth good sense when it comes to seemingly esoteric questions. Rothbard demolishes an argument by shining the beam of rational inquiry on it. As Arnold pointed out, Rothbard destroys utilitarianism by asking, “Why is it ethically better to follow the wishes of the greater as against the lesser number? What’s so good about the greater number?”
I recall a Mises Institute talk Rothbard gave about the history of economic thought, a subject that has claimed much of his attention lately. He remarked that in academia there is a rule of thumb that a researcher need not read old journal articles. Why? Because, so the argument goes, anything of value in those articles has been incorporated into the discipline and carried along to the present. And anything not of value has been happily left behind. Thus, there is no need, aside perhaps from antiquarianism, to look far back. He pointed out that the implications of this rule are important: a noted text on· the history of economic thought treats Austrian economics as obviously wrong not because anyone refuted it, but simply because it had its heyday in the 1930s. The fact that it was overthrown in the minds of economists by Keynesianism is all the proof needed for its inferiority.
Behold the Rothbardian mind in action: such a view, he said, contains an implicit historicism, to the effect that truth inevitably prevails in intellectual debate. This in turn posits a mechanistic process in which people without fail accept truth and reject falsehood. But when he makes the implicit explicit, we realize that this mechanistic view clashes with our everyday knowledge of people. There are countless reasons why falsehood could prevail: sheer error, political interest, etc. It just is not true that the schools of thought that “survive” are superior to those that do not. There are other criteria of “fitness” than truth.
In that talk, Rothbard went on to subvert all versions of historicism, especially those that claim that history is on an implacable march toward collectivism. But with equal rigor, he applied the same criticism to the views of those, such as Herbert Spencer, who thought that history was on an equally implacable march toward individualism and liberty. Aren’t we talking about Misesian Man? he asks in effect. And didn’t Mises teach that human beings of free will choose ends and apply means toward those ends as they peer into an uncertain future? Then there is no such implacable march by history anywhere.
This general approach—this cutting through the fog and touching the essence—is what Rothbard does in subject after subject. Nowhere is this clearer than his treatment of the monopoly question. For me one of Rothbard’s greatest masterpieces is chapter 10 of Man, Economy and State on monopoly. Rothbard’s refreshing reformulation of monopoly theory is ably described in the festschrift by Dominick Annentano. Through out the literature on monopoly one is bombarded with the terms “competitive price” and “monopoly price.” The competitive price is good and the monopoly price, being above the competitive price, is bad. Rothbard in effect says: Whoa! There’s no such thing as a competitive price, because it is derived theoretically from the fantastic notion of perfect competition. In a free market there is only the market price, the outcome of the higgling and haggling by real-world buyers and sellers. And if there is no competitive price, there is no such thing as monopoly price, because it is defined in terms of the nonexistent competitive price. But, says Rothbard’s opponent, what if a sole producer restricts production and causes the price of his product to rise? Hasn’t he achieved a monopoly price? Ah contraire, responds Rothbard: how do you know that he hasn’t just caused the price to move from a subcompetitive level to the competitive level? The next thing you’d hear would be silence.
For Rothbard, there can be no monopoly, in any nontrivial sense, in the free market. He advises that this dark label be reserved for state-privileged enterprises, as it was originally in England.
Another area where we can see this distinctive Rothbardian method applied is in his examination of the various economic justifications for the state. Roger Arnold discusses the concept of the prisoner’s dilemma and transactions costs in depth. Here let me pick out some essential points. Rothbard’s concern is with the generally pro-market economists and political scientists who justify government intervention on grounds that in a narrow set of cases, the market fails. For example, it is said that when transactions costs are too high to permit the production that people want, the government should provide it. Rothbard asks very simply what is so special about transactions costs? We don’t make an exception for high production costs or other kinds of costs. Why transactions costs? (Of course, this leaves aside what Rothbard never fails to remind us: that all costs are subjective, ephemeral, and hence immeasurable.) If the costs are prohibitive, the market is trying to tell us something. On the other hand, why should we be impressed that academic economists can’t think of a way to provide a product in the face of high transactions costs? If entrepreneurship were their comparative advantage, they’d presumably be rich entrepreneurs.
Moreover, what about the costs of government? Economists once treated government actions as costless or at least as net contributors to social well-being; any market failure was to be remedied by a political solution. (I propose that a shorthand for “political solution” henceforth be pollution.) Again, Rothbard stops us in our tracks. Any time the government helps someone, it hurts at least one other person. By definition government coerces, and coercion implies that its victim would have affected otherwise if left alone. Moreover, well-being or utility, is, like costs, subjective and immeasurable. Thus no matter how much the government helps someone, we can never say that it has generally improved the well-being of society. The bearers of the government’s burdens have not had their well-being improved nor their utility maximized.
Man, Economy, and Liberty overflows with discussions of Rothbardian insights on money, interest rates, efficiency, rights, class analysis, and more. Take, for example, Roger Garrison’s paper on Rothbard’s contribution to interest theory. Interest has perplexed students of economics from time immemorial. There probably are more wrong theories about interest than anything else. Even the great Austrian economist Boehm Bawerk once stumbled in this area. Rothbard once again goes against the mainstream with such clarity that the real puzzle becomes why this is a problem any longer.
As Garrison explains so well, interest for Rothbard (building on Mises and Frank Fetter) is explained by people’s preference for goods sooner rather than later. Since they have this preference, they discount the future; that is, they discount the value of the present inputs that will yield future outputs. “The value difference is interest,” writes Garrison. This explains why no matter how high the price of capital equipment, it is not as high as the expected value of the future goods that the equipment will produce. This is Rothbard’s answer to the various theories that explain interest in terms of the productivity of capital equipment. As Garrison points out, Rothbard’s approach puts an end to the age-old debate over which of the factors of production (land, labor, capital) is truly productive. “Professor Rothbard would reject the question,” writes Garrison. “The notion of productivity in this sense—and hence the issue of the source of such productivity—vanishes once we take adequate account of the temporal pattern of inputs and outputs and of the effects of time preference on their relative values.”
Or consider Rothbard on the issue of efficiency, discussed by E.C. Pasour, Jr. For Rothbard, ever mindful ofsubjectivism and uncertainty, efficiency is a “chimera.” The outside observer cannot judge the efficiency of another’s actions because he is not privy to the actor’s expectations. Seemingly inefficient behavior may be perfectly rational from the actor’s point of view. As Pasour notes, a cattle rancher could overgraze a pasture because he expects the future price of cattle to make this worthwhile. Costs—opportunity costs, to be more precise—are inherently subjective. Whatever the rancher believes he is forgoing by adding cattle to the pasture is judged less valuable than the anticipated benefits. “The conclusion is that an outside observer cannot identify another person’s inefficient behavior since the expected value of the costs and benefits that determine choice are unique to the economic actor,” Pasour writes.
As forbidding as this problem is for making pronouncements about the inefficiency of individual behavior, it is nothing compared to the problems regarding social efficiency, the basis of mainstream welfare economics. The reason is that comparisons of utility among people are simply impossible. Utility is subjective and ordinal, and thus mathematical operations cannot compute net social cost or benefit. This doesn’t imply that everything is always efficient. Rothbard the Austrian economist emphasizes the chimerical nature of efficiency by noting that knowledge is always imperfect, that improvement is always possible, and that people’s values and tastes are constantly changing. The implications for public policy are far-reaching because there can be no scientific claim to social efficiency. For Rothbard, ethics (justice) and our general understanding of how the market works should control public policy.
The book is filled with other treats as well. Gary North’s chapter on “Why Rothbard Will Never Win the Nobel Prize” is a gem. As is usual with festschriften, some chapters, rather than exploring the work of the honored person, deal with a topic related to that work. The historian Ralph Raico, for instance, tells the fascinating story ofJohn Prince Smith, founder of the 19th century free-trade movement in Germany. Finally, if I may be indulged, my own contribution to the book explores the thinking of Murray Rothbard between 1952 and 1962 as exhibited in several hundred private book reviews he wrote for the old Volker Fund. The youthful Rothbard expounds on economics, politics, and philosophy—and sounds much like the Rothbard of today.
There of course is no substitute for reading Rothbard himself, but that does not detract from the enjoyment of this celebration in writing for one of the great champions of reason and liberty.
